With the result MNCs are quite motivated to set up their production and service base in India in place of their host countries. These multinationals start operating in different countries from the very early stages. Firms in this category spend large amounts of money on R&D and have a high ratio of technical to factory personnel. Since labour is quite cheap here, MNCs are able to reduce their overall cost of production. Finally, depending on the nature of the MNC, investment in any country reflects a desire for a long-term return. 1. [16], MNCs may gain from their global presence in a variety of ways. Threat of nationalization is an effective tool of regu­lation. Types 6.

If the goodwill is established the bank can expand and build a strong customer base. try { The consoli­dation is often established by acquisition, merger or the vertical integration of the potential licensee into overseas manufacturing. Thus, both the negotiating power of MNCs and the supposed ‘race to the bottom’ may be overstated, while the substantial benefits which MNCs bring (tax revenues aside) are often understated. At the headquarters, the experts from political science, economics, accountancy, sociology and diplomacy are advising the top management on different issues prior to entry into any country. The first modern MNC is generally thought to be the Dutch East India Company. This withdrawal often causes governments to change policy. [15] The two main characteristics of MNCs are their large size and the fact that their worldwide activities are centrally controlled by the parent companies.

Every multinational has to operate through its satellite units, called subsidiaries. It sets up subsidiaries in such countries as Thailand, Malaysia, Zambia and Peru, estimating correctly that in these developing and urbanizing societies, people would eventually switch from home grown produce to food in cans and drinks in bottles. The parent firms are independently of each other but share control over the joint venture. It is the direct result of improvement in organizational operation’s viability and effectiveness. These issues become of increasing importance because of the emergence of MNCs in developing countries.

[14] There are subtle but real differences between these terms. Micklethwait, John, and Adrian Wooldridge. _g1.setAttribute('src', _g1.getAttribute('data-src') ); They look at the global, rather than only local potential. However, sometimes an MNC that has a production process or product patent can make a larger profit by carrying out the production in a foreign country itself. Prohibited Content 3. Destination India for MNCs. Although nationalization should be restored to only in the extreme situations, the very fact that it can be ex­ercised makes the corporations act in a disciplined man­ner. 7. “A joint venture may be the only way to enter certain countries. For example, Adidas holds patents on shoe designs, Siemens A.G. holds many patents on equipment and infrastructure and Microsoft benefits from software patents. [29], Multinational corporations may be subject to the laws and regulations of both their domicile and the additional jurisdictions where they are engaged in business. The existence of economies of scale means there are inherent cost advantages of being large. 6. The main characteristics of multinational companies are: When a corporation invests in the country which it is not domiciled, it is called foreign direct investment (FDI). Jeffrey, Alex, and Joe Painter. As for labour costs, while MNCs clearly pay workers in, e.g. For example, in an ef­fort to reduce health care costs, some countries have tried to force pharmaceutical companies to license their patented drugs to local competitors for a very low fee, thereby artificially lowering the price. Because of their size, multinationals can have a significant impact on government policy, primarily through the threat of market withdrawal. Your email address will not be published. Their rapid growth is a direct result of being able to use the internet, cheaper telephony and lower travelling costs to create unique business opportunities. It would be very difficult for an MNC to protect its reputation if a foreign licensee does an inferior job. Further reasons are originated from the control of proprietary technology and distribution systems, scale economies, privileged ac­cess to inputs and product differentiation. (b) Cost Advantage through Multiple Activities: Other firms take advantage of economies of scope.



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